BEE Partner, South Africa Economy Watch

To understand the management control scorecard, the definition of top management needs deciphering. Although the Codes do not define the term, they do define “top manager” so one can assume that a top manager represents top management. A top manager is:

An employee who holds the right of ownership, serves on the Board and undertakes the day-to-day management, has overall responsibility for the overall financial management and is actively involved in developing and implementing the overall strategy of the measured entity.

The way the definition is written it would appear that the top manager must represent all of the above criteria to be classified as a top manager. Many QSEs do not have an active board. However, if the QSE does not have a board and its managers meet the other requirements, such as shareholding and participation in strategic decision making, then the substance of the statement will be captured. QSEs should not create boards of directors just for the sake of BEE if there is no substantive economic need to do so, as this would be tantamount to fronting.

If a business does have a board, but the active CEO does not hold ownership in the enterprise, then that person would not qualify _{as a} top manager. Further, if the manager under review did hold ownership and held a position on the board, but was a marketing manager and did not hold overall responsibility for the financial management of the business, then that person may qualify for recognition as top management, provided he or she is actively involved in developing and implementing the overall strategy of the measured entity.

Unfortunately, as is evident from the paragraph above, the definition of top manager has the unintended consequence of undermining the promotion of Black people to management in QSEs.

Statement 802 provides common examples of senior top management:

• the chief operating officer and the chief financial officer
• the chief information officer, the head of marketing, the head of sales, the head of public relations, the head of human resources and the head of transformation.

In all likelihood some of these positions mentioned above will not be applicable to QSEs. From these descriptions it seems reasonable to read the definition of a top manager in the following light:

• An employee of the business who
• holds the right of ownership or
• serves on the board of directors or
• undertakes day-to-day management and
• participates in the responsibility for overall financial management or
• is actively involved in developing and implementing the overall strategy of the business.

The top manager is someone who is the head of their department and actively participates in the management and strategic decision making of the business. The definition also requires that person to hold an ownership stake in the business or to hold a position on the board of directors. The indicator does not stipulate how much equity participation the Black manager requires nor the percentage representation on the board. Subsequent clarification from the dti is that the ownership requirement in the top manager definition may be removed due to the unintended consequence of destroying the impact of the management element by linking it to the ownership element.

In the QSE environment, operations are too small to penalise companies for not including Black women in the management control element. The scorecard encourages Black women participation by allocating bonus points to a QSE that does include Black women in management control. However, the QSE can still score 100% of the management control points if Black women are not included.

Target

The next folly in this Statement is setting a target of 50,1% for top management to be held by Black people. Although the Statement is not clear, it seems natural to assume that one out of two top managers must be a Black person. It seems highly unlikely that any QSEs will hand over management control to a minority shareholder or minority shareholders. If the full 50,1% management control is held by a Black manager, then the QSE will receive the full 25 points for management.

Throughout the Codes, calculations are done on a pro-rata basis. Although guidance is not given, it seems reasonable that the scores will be rounded to the nearest two decimal places. If a QSE had Black top management representation of 49%, leaving the overall control in the hands of the original management, then the points would be calculated as 49/50 x 25 = 24,45 points. For the sake of overall management control it seems likely that most QSEs will forgo half a point.

The target appears unrealistic. In practical terms, if a QSE has more Black top managers in lesser positions, such as marketing manager, human resources manager and public relations manager, and the two senior positions of chief financial officer and chief executive officer are held by the original management, then the entity would achieve the 50,1% target with control remaining with the original shareholders.

At first glance the practicality of the target appears ludicrous. However, in practical terms the target is achievable without the original owner having to give up actual control of the business. There is a great likelihood that the target will be changed to 50% to be in line with Statement 200’s target.

The target for the bonus points is-25% of the top management positions to be held by Black women. The 25% does not represent an additional 25%. Black women are also Black people for the purpose of Measurement, so a Black woman chief financial officer would score Points under both indicators.

Points

There are 25 points available for an entity that achieves the target f_orthe Black top management indicators and two bonus points for entities who have 25% Black women represented in senior top management. A total of 27 points may be taken forward.

Calculation

Calculating the points for management control involves a relativel_y simple equation.

A = the score for the management control

B = the number of Black top managers as a percentage of the total top managers

C = the target provided by the indicator (50,1% for the Black people indicator or 25% for the bonus point indicator)

D = the weighting points allocated to the indicator (25 points for the Black people indicator and two points for the bonus points indicator.

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